The Platform In An Age of Hyperawareness
[The following, with minor editorial changes, is from a monthly newsletter I publish at Google Cloud. Subscribe here.]
There is a business attribute that almost every tech company seems to want. Few understand why they want it, though.
It’s to be a “platform.”
Something has happened to that concept, however, that says much about our sensor-rich world of smartphones, Web pages, interactive software and devices, capable of sensing and responding to change. And above them all, powerful cloud computing systems with enough data and analytic capability to read the world in entirely new ways.
Traditionally in tech, when you were a platform, businesses sought customers by representing or growing your business. Wall Street swooned at the prospect.
The popular example is Microsoft’s operating systems for IBM personal computers, first MS-DOS and then Windows.
Initially the Microsoft OS faced many competing operating systems, but because it powered IBM’s PC — and then the many “IBM clones” from other companies — it won out. The great number of PC owners attracted other software developers who built other things Microsoft wasn’t, increasing the attractiveness of the PC (hence more owners, hence more developers, keep spiraling that up for a couple decades).
In a remarkably prescient 1996 article in The Harvard Business Review, the economist W. Brian Arthur identified the Microsoft platform as one of many instances of tech breaking the fundamental rules of traditional economics. Instead of producing goods that eventually reach diminishing returns (the cost limitations of reaching all possible customers), tech platforms created increasing returns, operating under less stable terms but with greater network effects and strong customer lock-in.
Much has changed since Arthur wrote his article — in particular, the high-cost barriers to entry for many participants, the size of potential networks, and the steep technology learning curve that keeps customers from abandoning what they know.
You can thank cloud computing for those cost reductions and increased reach, though big clouds themselves have high barriers to entry in terms of money and talent.
In the past three years my employer, Google, has spent $45 billion on things like data centers, land and undersea networks, and the equipment to run them. This year we’ll spend $39 billion, and use enough steel to build 20 Eiffel Towers. Building a computer the size of the planet is not simple.
Yet despite the superficial changes, the importance of platforms in tech endure. The reasons why suggest something else is now going on.
Think about some more recent successes, and the things that propelled them. Apple introduced the iPhone in 2007, intending a music player, a phone, and an Internet browser in a single device.
A year later something interesting happened: Apple cut the price of the phone in half, and introduced the App Store, a place where developers could offer all kinds of software for the phone, leveraging other aspects like geolocation and the accelerometer. iPhone prices didn’t radically go up until 2014, when Apple had an impressive network of developers, apps, and, yes, customers.
Facebook also provided access to customers, attracting developers to this model in its early stages. Things like signing on to other services through Facebook, however, made the company powerful for the way it gave members of the social network easy access to other services. In this case, other sites were interested in Facebook because of the size of its network.
As we move further into companies that probably couldn’t exist without the cloud — outfits like Uber, which combine social networking, big data analysis, and mobility, all anchored in the cloud — we find platforms that grow strong through customers. But not, as in the old days, because it attracted developers, but because like Facebook sign-on, the growing size offered members additional benefits.
So what has changed? Arthur’s prescient essay offers clues. Businesses would succeed in a world of increasing returns, he said, by discerning the overall ecosystem in which their product lived, and reacting quickly to changes within that system of producers, consumers, allies, and partners.
Another great early theorist of our new economic system, Peter Drucker, also argued that information technology was creating “a new basic civilization” based on the biological metaphors of ecology. Interactions, ecosystems, webs of knowledge and a process of continuous responses to environmental changes are more than just marketing terms in tech. They reflect the eternal contingency and change of a more highly aware system.
The platform is, it turns out, a place where customers congregate, but more importantly, it is an information chokepoint, a place where there’s valuable data to be gathered about behavior, economic relationships, and popularity of goods and services. It’s an ecosystem, but also a means to reading the ecosystem. A necessary guide, in a world of hyperawareness.
Which raises an interesting question: Could someone create something like an information-monitoring platform within a company? Are there information gateways that can be observed, or individuals who are particularly gifted in discerning and disseminating critical information about larger conditions of the corporate ecosystem?
Figure that out, and the margins will follow.